In the months after Prime Minister Narendra Modi’s landslide 2014 victory, speculation swirled of a rift with central bank Governor Raghuram Rajan.

Members of Modi’s party saw Rajan, a former International Monetary Fund chief economist, as a loyalist of the ousted Congress-led government that appointed him to run the Reserve Bank of India eight months earlier. One even called for him to be fired if he didn’t cut interest rates.

Yet when the pair joined together in Mumbai last April to celebrate the central bank’s 80th anniversary, Modi lavished praise on Rajan. The prime minister called him “the best teacher" thanks to his ability to simply explain complex ideas, adding: “He makes me understand them so perfectly that I don’t need to question anything."

The positive working relationship -- featuring moves to control inflation, narrow the fiscal deficit and boost foreign reserves -- is helping counter the narrative of disappointment since Modi took office. While investors remain frustrated with failures including a delayed tax overhaul, India isn’t currently gripped by the sense of panic that struck in 2013, when emerging markets last came under pressure.

‘Fundamental Reset’

And while joint efforts to clean up banks, end power shortages and curtail corruption face substantial obstacles, they have the potential to upend a growth model that funnels wealth to a small elite. In the process, that would empower a younger generation with lower business costs and a more level playing field.

“Modi and Rajan as attackers of vested interests -- and technology as a tool for a new generation of entrepreneurs to change the system -- is creating a fundamental reset on how India works," said Saurabh Mukherjea, chief executive officer of institutional equities at Ambit Capital Pvt. in Mumbai. “I don’t think foreign investors have fully understood the scale of how dramatically India has been changed by these three forces.”

David Fuller's view

India’s promising GDP growth rate but fiendishly bureaucratic political system are recipes for stock market volatility, which we have certainly seen.  Nevertheless, if you agree with the mantra - Governance is everything – Prime Minister Narendra Modi and Central Bank Governor Raghuram Rajan are a powerful and capable combination.

I have no position in India at the moment but it has become cheaper over the last year and would look tempting near the 20,000 level for the India Mumbai Sensex Index.